Options Trader: Wednesday Wrapup

by: Philip Davis

Hard to tell what today really told us.

We had a nice broad based rally but low volume and could not hold our numbers:

* The Dow fell short of 11,200 after spending 2 hours above it
* The Nasdaq didn't want anything to do with 2,100, treating 2,090 like the plague
* The S&P couldn't stay over 1,280 in the end
* The NYSE could not break 8,300

So every number I called for on Monday was tested and failed in today's rally. The big turn came at 2pm when we got very clear get out signals from Apple, TXN and GE. When 3 out of 4 indicators we are watching say sell - sell!

I want a rally as much as the next guy but I spent all weekend coming up with those numbers and it is very scary to see them all hold 3 days later... So it's back to cash and day trading for now until we see which side of the fence the markets are going to fall on.

With any luck we will punch through those levels on convicted volume tomorrow but it is far more likely something will cause a huge commodity sell-off that will pull the markets back down instead.

Oil is up close to $76 but the dollar index is at 85, down 4% from where it was when oil was at $79 three weeks ago. So, on a dollar adjusted basis, oil is down about 10% from where it was on 7/14 which explains XOM and OIH's divergence in this "hot" oil market.

The conditions are right for oil to punch through but a halt in rate hikes by the ECB may boost the dollar and bring oil quickly back below $75 in the morning which may knee-jerk the oil patch back a couple of points. We have Israel, Iraq and a hurricane in focus tomorrow against a backdrop of intense demand so anything under $80 per barrel is a problem for oil bulls because it just doesn't get any better than this on the bad news front!

Gold is supporting oil prices but more so indicating how weak the dollar is yet everyone keeps buying our bonds because it's still safer looking than Euros or Yen. Dollar supremacy is still ours to lose and I really hope Paulson has something up his sleeve besides the same o' same o'.


Just another tricky day in the markets and I am going to go by the stop out prices on today's trades as there was no reason on earth to ride these things down after such a good morning!

AQNT is a great example of why you should always cash out on the morning spike. Our little $22.50s which we picked at .75 and dipped to .50 opened at $2.70 (up 285%), held $2.50 for 15 minutes, dipped to $1.60 and finished the day at $2 (still up 180%). It did all that on this pretty flat chart.

GM had a spectacular low open with our $30 puts opening at .95 (up 90%). It dipped to .80 on a spike but came back to .95 again but never saw .90 again after 9:45. Stops are vital if you are going to day trade!

VIA went the wrong way and, in one of those quirky option things, the Jan $35s went up to .10 $2.25 while the Nov $35s we sold dropped .30 to $1.65. That's already a .40 gain on a .20 net investment to keep things in perspective!

XOM pulled a nice reverse exactly at my $69 target where the $67.50 puts came in at .65 and the Sept $70s stopped out at $1.50 (up 87%). Essentially we locked in a .15 profit and have a free ride on the puts...

TWX finally kicked in with a very strong cable report and much better than expected (well I expected it) AOL numbers. The Oct $17s barely budged to .50 (up 25%) but that one's a keeper to me.

SHLD gave us a scare in the morning but recovered nicely. Too jittery for me though...

I may have to rethink EBAY, the Oct. $22.50s already dropped 20% to $2.35 but that just makes the Sept $25s just look better at .60 if the market holds.

PFE got sued and took a huge plunge mid-day but it's too much and the $25s look great for .75. The Sept $25s dropped 25% to $1.05 after a great start 8-(

MGM was a nice trade and the Sept $40s are already $1.35 (up 150%). You would be crazy to have not taken half of this off the table into earnings so I hope you did and looking at LVS's numbers, not everything that happens in Vegas meets analysts expectations...

HET wasted no time putting our Sept $60s into the money at $2.30 after a very low open at $1.75. If MGM disappoints, they may get hit as well.

QQQQs provided a nice entry and the $37s finished the day at .65 (up 30%).